World Oil Markets Face Production Shortfall in Second Half

Wednesday, July 13, 2011
By Paul Martin


The International Energy Agency may not have a solution but no one can accuse them of no longer understanding the gravity of the problem.

In their June report, the IEA warned that unless OPEC could increase production by at least 1.5 million barrels a day, world oil demand is going to surpass available supply during the second half of the year.

It means if there is not enough supply to match the 89 million barrels of oil the global economy is expected to burn every day, world oil prices have only one direction to go.

With no obvious end in sight to the Libyan conflict, and sectarian violence against oil fields and refineries suddenly on the rise in Iraq ahead of the scheduled U.S. troop withdrawal, the prospects are not promising for OPEC to increase supplies. This is even more evident given the region’s largest producer, Saudi Arabia, has little more to offer other than unwanted sour, heavy oil to add to the global supply mix.

At the same time, emerging power shortages sweeping across Asia will boost oil demand even when most major Asian economies are slowing, including the continent’s largest two economies, China and Japan. While an economic slowdown normally tames oil demand, both countries now face acute power shortages that will compel them to burn more diesel fuel to compensate for reductions in other forms of power generation.

In China, widespread drought earlier in the year has constrained hydroelectric power, while nearly two thirds of Japan’s nuclear power plants are currently, and for the foreseeable future, off-line, boosting that country’s appetite for diesel by hundreds of thousands of barrels a day.

With Brent crude prices having crossed into triple digit territory since the beginning of the year, fuel and power shortages are popping up around the world with increasing frequency. And they are beginning to exact a heavy economic toll.

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